How to Interpret the Conflicting Signals

Over the past weeks, I’ve posted several articles suggesting things are starting to improve — and more particularly, here in Victoria.

Upward Trend

Upward Trend

Since the low point on 6 March, the Australian stock market has enjoyed roughly a 20% improvement. And that has also been reflected on Wall Street.

However, we then received the recent announcement of unemployment reaching 5.7% for March — the worst for 5 years.

On the one hand, the Bulls are claiming the stock market is now confirming a turnaround. And on the other, the Bears are using the rise in unemployment to support their case as to how bad things are.

Surely, these two indicators can’t both be right?

h3. Or can they?

You see, the stock market is what economists refer to as a ‘Leading’ indicator — which tends to precede the full recovery by about 9 to 12 months.

And unemployment figures are what is known as a ‘Lagging’ indicator — which tends to follow the start of any serious economic decline, by about 9 months.

h3. So, what is all this telling us?

In essence, it is confirming that we are pretty much at the bottom of this economic downturn — where things may continue to “move sideways” for a little longer.

Even the figures coming out of the US this week would tend to indicate that many areas of concern are now beginning to stabilise.

And so, my view continues to be that (for most of Australia) the economic climate should have vastly improved by early 2010.

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